Chipmakers had a fabulous second quarter, with the iShares PHLX Semiconductor ETF rising more than 40% from the Mar 23 lows through the end of June. This has primarily been driven by the widespread stay-at-home orders imposed by the government to curb the spread of coronavirus. Such lockdown measures drove strong demand for home office equipment, including desktops, laptops and tablet computers as well as home network gear, all of which need DRAM and NAND memory chips.
Lockdown measures also compelled consumers to shop online. Thus, any consumer-oriented business needs to have a digital presence on the cloud in order to survive. And let’s not forget, cloud computing depends heavily on DRAM and NAND memory chips. Notably, Micron Technology MU reported fiscal third-quarter results that topped consensus estimates, led by growth in cloud demand. Thus, chip heavyweights are garnering most of the attention from investors as they are set to report earnings this week. Notable among them are Texas Instruments Incorporated TXN and Intel Corporation INTC, scheduled to report on Jul 21 and Jul 23 after the closing bell, respectively.
Analysts currently expecting Texas Instruments to report a modest sales beat due to less-than-projected reduction in orders from customers. This is because as coronavirus boosted digital-based businesses, including cloud computing and network storage, demand for memory chips has improved considerably.
Most importantly, as a greater number of people worked from home in the said quarter, demand for PCs and servers that power data centers is expected to have increased. That bodes well for Texas Instruments and the rest of the semiconductor industry. At the same time, the company’s initiative to ramp up production of its 300 mm wafers for its analog processors has certainly trimmed cost and boosted production efficiency in the second quarter.
Over the past two years, Texas Instruments has beaten EPS estimates nearly 88% of the time. And this time isn’t likely to be any different! The Zacks Rank #2 (Buy) company has an Earnings ESP of +6.19%. Per our proven model, the combination of a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 or 3 (Hold) increases the chances of an earnings beat. You can see the complete list of today’s Zacks #1 Rank stocks here.
Encouraging earnings performance, no doubt, drives stock price. Shares of Texas Instruments are projected to increase 9.3% over the next five-year period. In fact, shares of Texas Instruments have already gained 6.7% so far this year.
Intel, by the way, has offerings in these cutting-edge markets, including cloud computing and AI. And the company has likely benefitted from the stay-at-home trend in the second quarter amid the pandemic that drove demand for remote-work services. After all, the work-from-home wave has driven the need for cloud-based solutions, which in turn improved the company’s data-centric business in the second quarter.
Intel’s data-centric business model primarily comprises the Data Center Group (“DCG”), Internet of Things Group (“IOTG”), Non-Volatile Memory Solutions (“NSG”), Programmable Solutions Group (“PSG”) and other business units.
Meanwhile, the coronavirus crisis, which has been disrupting many industries, has actually increased the adoption of AI. After all, AI has touched almost every sphere, including advertising, healthcare, robotics, retail, video streaming, gaming and urban development.
And Intel recently made solid advances in AI-centric markets. Since the acquisition of Mobileye, it is much into the self-driving space. Thus, Intel’s venture into AI is likely to have had a positive impact on its second-quarter performance.
Forecasters expect total revenues for the second quarter at $18.54 billion, suggesting a 12.4% rise from the year-ago levels. Similarly, earnings per share are projected at $1.11, indicating a 4.7% rise from the same period a year ago.
What’s more, the Zacks Rank #2 company has an Earnings ESP of +3.13%. Upbeat earnings performance eventually leads to a rally in the share price. The company’s expected earnings growth rate for the next five-year period is 7.5%. Intel’s shares have gained 2.4% year to date.
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